Is the United States materialistic? The geography of consumption.

The belief that material possessions improve individuals’ personal and social well-being permeates America. However, contrary to this belief, multiple studies show that materialists, compared to non-materialists, have lower social and personal well-being. Compulsive and impulsive spending, increased debt, decreased savings, depression, social anxiety, decreased subjective well-being, less psychological need satisfaction, and other undesirable outcomes have all been linked with materialistic values and materialistic purchasing behaviors.

Will Smith MaterialismIn light of these findings, many studies have tried to determine what causes these strong materialistic desires in America. In a recent paper, my colleagues and I examined the “geography of materialism.” We found a connection between one’s neighborhood socioeconomic status and materialism.

Consistent with past research that has demonstrated there are some negative influences of neighborhood characteristics on individual attitudes and behaviors, our results suggest that various local economic indicators of wealth (e.g., more financial development, higher median per-capita income) affect individuals’ materialistic values, impulsive buying tendency, and savings behavior. These signals of wealth conveyed by the local economy appeared to impact self-evaluations in a manner similar to when one is exposed to idealized advertising images. That is, individuals who were young, poor, and lived around wealth were most vulnerable to engaging in social comparison with idealized, wealthier individuals, and using their scant resources to accumulate possessions to, presumably, convey wealth they did not have.

The reason for the link may have to do with “relative deprivation,” or the feeling that people are less well-off than those around them. In this case living in a strong local economy may change individual’s comparison standards and encourage individuals to socially compare with respect to their material belongings, style, and consumption patterns. We suggest that people who live in more affluent areas are vulnerable to this implicit social comparison–if you see other people spending a lot of money, you feed a need to live up to that standard. Because of this, you end up buying a lot of material items, typically on impulse, even though they don’t actually make you happier.

Think about it—if someone is bombarded with images or reminders of wealth, such an abundance of investment banks nearby or neighbors driving luxury cars, they are likely to feel a need to spend money they may not have to project an image of wealth they don’t actually possess.

So, what is the next step? We want to explore whether there are ways to counter a neighborhood’s effect on an individual’s materialistic values. This could be done simply by making more people aware of the correlation, or through interventions developed to make people feel more grateful for their status.

That is why we developed BeyondThePurchase.Org; to help people make the connection between their spending habits – how do you spend your money and who do you spend it on – and their happiness. To learn about what might be influencing how you think about and spend your money, Register with Beyond the Purchase, then take a few of our spending habits quizzes:

How happy is your subconscious? Find out by taking our Implicit Happiness quiz.

How materialistic is your subconscious? Find out by taking our Implicit Materialism quiz.

Some people are gadget heads and some are foodies. Which do you spend your money on? Find out by taking our experiential buying quiz.

“Living in Wealthy Neighborhoods Increases Material Desires and Maladaptive Consumption” by Jia Wei Zhang, Ryan Howell, and Colleen Howell was published online on Feb. 7 in the Journal on Consumer Culture.

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What is hedonism? A lesson from Dorian Gray.

I must admit, when I was in high school I was more likely to read the sports page of the Dallas Morning News than my English assignments. But, for some reason, there was one book that I couldn’t put down: The Picture of Dorian Gray.

Maybe it was something about the question of if there is anything better than pure pleasure (is that the good life?); maybe it was the weird trade off between hedonistic pursuits at no cost and seeing one’s debauchery displayed on a painting one sin at a time. Or maybe it was the how the Brits reacted to Oscar Wilde’s character Dorian Gray, who has a lot of sex, drinks often, and cares only about pursuing pleasure over morality.

To this day I am still not sure what the draw was, but something still seems unsettled. Dorian Gray is what people call a “hedonist,” but what does that really mean? Who doesn’t like pleasure? Given the opportunity to experience more pleasure, who would turn that down?

What seems problematic is when a person pursues pleasure to an unhealthy extent. For example, eating cake three times a day, every day, seems unhealthy. What about once a year? Not likely. For this reason one of my students, Masha Ksendzova, decided to operationalize hedonism, not as valuing pleasure per se, but as the maladaptive pursuit of pleasure—that is, “hedonism” is an unhealthy pursuit of pleasure.

With that definition in mind, we decided to determine how hedonism, the unhealthy pursuit of pleasure, is related to happiness, meaning, and satisfaction. At BeyondThePurchase.Org, and its sister website Your Morals.Org, we asked people to tell us how much they were willing to sacrifice (e.g., overspend, risk relationships, ignore their health) to experience pleasure.

What did we find? Those who are willing to sacrifice for pleasure valued thrill-seeking and physical pleasure. For example, the more people enjoyed eating tasty food, the more maladaptive they pursued pleasure. Interestingly, there was no relationship between hedonistic tendencies and happiness. However, hedonists reported feeling anxious. Thus, we wonder if the unhealthy pursuit of pleasure is really the pursuit of happiness or a maladaptive attempt to cope with unhappiness.

You can help us better understand the (unhealthy) pursuit of pleasure and its relationship with happiness. First, Login or Register with Beyond The Purchase, then find out how hedonistic you are.

Take the Hedonism Value Scale and learn if you pursue pleasure to an unhealthy extreme.

How materialistic are you? Find out by taking the Materialistic Values Scale.

Are you a compulsive buyer? Take the Compulsive Buying Scale and learn about your spending habits.

With these insights, you can better understand the ways in which your financial decisions affect your happiness.

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What do personality traits tell us about consumer behavior?

This is a guest blog entry by Kyle Thomas, V.P. of Research at TipTap Lab and Ph.D. candidate, Psychology at Harvard University.

While researchers can determine, quite easily, consumer behaviors from self-report data, it is almost impossible to get reliable data on why they buy what they do. How then can we predict why consumers make the decisions they make? If we leverage psychometrics and personality psychology we can predict motives, but only if the reason for a decision can be linked to a psychological trait.

Recent advances in personality psychology can help us predict consumer motivation. Traits are defined as enduring and stable patterns of behavior, attitudes, emotions, that vary between individuals. Traditionally, researchers were interested in understanding how individuals differ, and so they put a great deal of effort into discovering how to measure, map, and define personality traits. However, by the mid 1990’s, a consensus was reached about a universal structure of personality. Now almost all personality psychologists agree that the Big Five should be the common framework for personality.

Researchers are now reconceptualizing what traits are and where they come from–with traits being understood as chronic motivators that drive their decision-making. For example, researchers have linked personality traits to diverse outcomes such as experiential buying tendenciespolitical orientation, natural language use, preference in pets, the state of one’s personal living space, and even more important life outcomes such as divorce, morbidity, and occupational attainment. Some recent data suggests that people who find themselves in disease-ridden environments tend to be less open and extraverted, presumably because this makes them less motivated to explore and interact with others (which reduces the chance they will become infected). In addition to the growing evidence of the predictive power of personality, Will Fleeson is trying to unify motivational and personality psychology with his Whole-trait Theory. The theory conceptualizes traits as having both descriptive and explanatory elements, with the explanatory element representing the motivational component. Consistent with this theory, Fleeson and McCabe report that goal pursuit accounted for a whopping 74% of the variance in extraversion.

All of these advances offers a way to determine consumers’ motivations; think of personality traits as a back door to understanding motivations. Because personality traits and consumer behaviors can be measured accurately, understanding the relationships between the traits and behaviors allows a researcher to understand the motivations without having to ask people for this information. We believe that when a trait is correlated with a consumer behavior, it can be inferred that whatever motivation this trait is connected to is the motivation for that behavior.

For example, TipTap Lab has used these recent developments to develop an Image Selection Task, which can be used by anyone to measure a suite of traits related to consumer behavior. This allows people to understand customers’ true motivations, and figure out how to better tap into these motivations. This is all a result of understanding the psychology behind self-report data, and integrating that understanding with other areas of psychology to create methods that are capable of circumventing the potential problems that self-report data can present. This insight has the potential to revolutionize consumer research, as it offers the first method to get reliable and objective results for understanding why consumers do what they do, and their API was developed to give anyone access to tools that can assess this information.

At BeyondThePurchase.Org we want to know what you spend your money on so we can learn about the motivations for specific purchases. To learn about what might be influencing what you spend your money on, Login or Register with Beyond The Purchase, then take a few of our spending habits quizzes:

How materialistic are you? Find out by taking the Materialistic Values Scale.

Are you a compulsive buyer? Take the Compulsive Buying Scale and learn about your spending habits.

How hedonistic are you? Take the Hedonism Value Scale and learn if you chase pleasure to an unhealthy extreme.

With these insights, you can better understand the ways in which your financial decisions affect your happiness.

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Do Our Values Predict What We Buy?

Every day more and more people are trying to understand the relationship between money and happiness. Lately I have been thinking about, what seems like, a simple question: do our values predict what we buy? Allen and Ng (see citation below) proposed that the influence of values on product evaluation will be different for utilitarian and symbolic products. First, some background.

Consumer values theories suggest that individual attributes of a product will be evaluated positively or negatively and through a process of abstraction, these evaluations will collectively form a product attitude. These attitudes will then be generalized to other similar products and product classes, eventually creating a value by which future product evaluations will be influenced. This is called the value-attitude-behavior hierarchy. Previous research distinguishes between utilitarian product meaning, which results from a sequential evaluation of tangible product attributes, and symbolic product meaning, which comes from a holistic, affective reaction to a culturally defined entity which is separate from the physical product form.

Allen and Ng (1999) hypothesized that human values exert a direct influence on symbolic products (e.g., sunglasses), but only an indirect influence on utilitarian products (e.g., cars), via tangible attributes. So what did they find? Using a very complex series of regressions analyses, their main hypothesis was supported for both product classes–though the effects were rather weak. The weak influence of values on product choice may be due to the fact that values are a very general construct, while ownership of two particular products is a very specific behavior.

So, what are the guiding principles in your life? Take the Schwartz Value Scale and compare your values on 10 dimensions from hedonism to benevolence? This online survey takes about 5 minutes. When your take this survey, you will learn which values are most important to you and how your value priorities influence your ideologies, attitudes, and actions in political, religious, environmental, and other domains. You will also see how your values compare to others.

Take the Schwartz Value Scale now!

At BeyondThePurchase.Org we help people make the connection between their values and spending habits – how do you spend your money and who do you spend it on – and their happiness. To learn about what might be influencing how you think about and spend your money, Login or Register with Beyond The Purchase, then take a few of our spending habits quizzes:

How do your current priorities impact what you buy? Take our Life Goals and Buying Choices and on your feedback page you will learn you will learn how current priorities impact what you buy.

How materialistic are you? Find out by taking the Materialistic Values Scale.

Are you a compulsive buyer? Take the Compulsive Buying Scale and learn about your spending habits.

With these insights, you can better understand the ways in which your financial decisions affect your happiness.

Allen, M.W., & Ng, S.H. (1999). The direct and indirect influences of human values on product ownership. Journal of Economic Psychology (20), 5–39.

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You Know That Sex Sells. Do You Know Why?

Have you ever wondered why certain brands seem to add attractive models, for what appears no good reason? Well, here’s why. Take a look at this picture:

You may not realize this, but this photograph will make you take more financial risks. Why is that? I am glad you asked.

When you are exposed to erotic stimuli, a region deep within your brain—the nucleus accumbens—becomes activated. This is the part our brain that is “turned on” when we experience positive emotions. So, how do we know that this region of the brain will make you take more financial risks? A study by Knutson and colleagues provides evidence for the link between nucleus accumbens activation and financial risk taking.

In their study, participants were randomly presented with pictures of couples in erotic positions (highly arousing and positive), snakes and spiders (highly arousing and negative) or household appliances (neutral picture). They were then instructed make an investment—their two choices were to invest $1.00 or $0.10 (the less risky investment). The researchers also used functional magnetic resonance imaging (fMRI) techniques to “see” what parts of the brain were activated (what brain regions were “turned on”) during financial decision making. They then correlated activation in the nucleus accumbens with the person’s financial choices.

The researchers found that when people were shown pictures of couples in erotic positions, they were more likely to risk $1.00 compared to when they were shown pictures of a spider and snake or household appliances. Most importantly, they found that the nucleus accumbens, the part of the brain associated with experiencing positive emotional states, were activated when making riskier decisions.

Thus, because of activation in the nucleus accumbens region of the brain, people made risky financial investments.

So, this is all well and good, but why do these results matter? Well, this type of subtle “priming” happens all the time. In fact, this basic principle is widely used in casinos. Casino owners want people to make riskier decisions when gambling, so casinos are designed to maximize positive emotions like excitement. Casino floors are full of colorful lights, attractive servers, and appetizing food and drinks all working together to increase your nucleus accumbens activation.

Thus, the next time you’re in Las Vegas, pay attention to parts of the environment designed to activate your nucleus accumbens. While there is nothing wrong with going to Las Vegas, it might not be a bad idea to pause and consider what is influencing your spending habits. After all, casino owners know what will make you spend more money—you should too.

How can you find out what else influences your spending habits?

At BeyondThePurchase.Org we help people make the connection between their values and spending habits – how do you spend your money and who do you spend it on – and their happiness. To learn about what might be influencing how you think about and spend your money, Login or Register with Beyond The Purchase, then take a few of our spending habits quizzes:

How do your current priorities impact what you buy? Take our Life Goals and Buying Choices and on your feedback page you will learn you will learn how current priorities impact what you buy.

How does your expected happiness impact what you buy? Take our Forecasting your Happiness and on your feedback page you will learn if happiness matters more when you are buying a life experiences or a material item.

To find out more about subtle primes that influence your spending, we encourage you to first take the Implicit Buying Motives Study.

You might then try the Consumer Susceptibility to Interpersonal Influence Scale, which measures the extent to which the values of your family and friends influence your own behavior.

Along the way, we think you’ll find out a bit more about why you buy and what makes you happy. The results might be surprising.

This entry is based on the following research paper:

Brian Kuntson, G. Ellition Wimmer, Camelia M. Kuhnen and Piotr Winkielman (2008). Nucleus accumbens activation mediates the influence of reward cues on financial risk taking. NeuroReport, 19, 509-513.

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People who manage their money are happier.

Recent research into the age-old question “Can Money Buy Happiness?” has resulted in some intriguing results. There is now empirical support linking several specific financial strategies to increased happiness and life satisfaction. These suggestions include delaying gratification, savoring positive purchase memories, making purchases that satisfy needs as opposed to desires, purchasing life experiences as opposed to material objects, and, ultimately, spending money in ways that increase psychological need satisfaction as well as in ways that are central to the self.

Face it to Erase it! Also, in today’s world, many consumers do not manage their money well and end up suffering from overwhelming levels of debt. Prominent financial counselor, Suze Orman suggests that “You’ve got to Face it to Erase it”, referring to the need to start looking at and managing your debt. Students in my lab were interested in determining if how one manages their money can also influence happiness. To answer this question they examined people’s responses to several money and happiness quizzes completed by members of the BeyondthePurchase.Org community.

Results indicated that how an individual handles their money (i.e., do they repay credit card debt on time, track their purchases, or save money regularly?) had a great influence on their feelings of security. Also, when people felt more secure, they experienced increased happiness and life satisfaction. Specifically, we determined that individuals who manage their money were happier, more satisfied with their lives, and experienced less negative emotion.

“Our findings suggest that dealing with credit card debt and loans has the biggest impact on happiness,” says Grant Donnelly.

Has your credit card or student loan debt gone unchecked? Developing a repayment plan might not only improve your financial situation, but might actually make you happier as well.

That is one of the reasons we created BeyondThePurchase.Org where we help people make the connection between their spending habits – how do you spend your money and who do you spend it on – and their happiness. To learn about what might be influencing how you think about and spend your money, Login or Register with Beyond The Purchase, then take a few of our spending habits quizzes:

How do your current priorities impact what you buy? Take our Life Goals and Buying Choices and on your feedback page you will learn you will learn how current priorities impact what you buy.

How does your expected happiness impact what you buy? Take our Forecasting your Happiness and on your feedback page you will learn if happiness matters more when you are buying a life experiences or a material item.

How materialistic are you? Find out by taking the Materialistic Values Scale. Are you a compulsive buyer? Take the Compulsive Buying Scale and learn about your spending habits.

With these insights, you can better understand the ways in which your financial decisions affect your happiness.
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Many people do not have $1,000 saved for an emergency.

A few years ago I read a story in CNN Money (Most Americans can’t afford a $1,000 emergency expense) that reported over 60% of Americans did not have enough money in their savings or checking accounts to pay for a $1,000 emergency. I was shocked. Is it possible that only 36% of US adults have $1,000 in a savings account saved up for a rainy day? Well, maybe not.

The study CNN Money cited was a survey conducted by the National Foundation for Credit Counseling and their was something problematic with their study–the results were based on the NFCC’s July 2011 Financial Literacy Opinion Index which was collected on their homepage (www.DebtAdvice.org). So the only people included in the survey were individuals who would actively seek our “debt advice” and opt-in to complete a survey. Now, the results were starting seemed reasonable: of those people who would go to a debt advice website, and complete a financial literacy survey, only 36% of these individuals have $1,000 saved up for a rainy day.

Well, I have always been bothered by the fact we actually do not know how many US adults have $1,000 saved up for a rainy day. So, I added the same question the NFCC asked in one of our nationally representative surveys. We asked over 700 US adults “If you needed $1,000 for an unplanned expense, what would you do to obtain the money?” Here is what we found out from our representative US sample.

Most Americans can't afford a $1,000 emergency expense

If you needed $1,000 for an unplanned expense, what would you do to obtain the money?

As the graph shows only 60.7% of people have $1,000 saved for an emergency. That number is the exact opposite of what the NFCC found (which reported that 64% of “US adults” did not have have $1,000 saved for an emergency). Though, this still demonstrates that maybe as many as 40% of US adults would need to obtain the $1,000 through less than desirable methods (borrowing the money from friends or family, taking out a loan, getting a cash advance, selling or pawning some assets, or disregarding some other month expense).

So, even though the NFCC had a skewed sample, I do agree with Gail Cunningham, the spokesperson for the NFCC at the time of the survey, who said in their press release ”without adequate savings, consumers have poor resolution choices when an emergency arises. People often say they can’t afford to save, but the truth is that they can’t afford not to.”

That is one of the reasons we created BeyondThePurchase.Org where we help people make the connection between their spending habits – how do you spend your money and who do you spend it on – and their happiness. To learn about what might be influencing how you think about and spend your money, Login or Register with Beyond The Purchase, then take a few of our spending habits quizzes:

How do your current priorities impact what you buy? Take our Life Goals and Buying Choices and on your feedback page you will learn you will learn how current priorities impact what you buy.

How does your expected happiness impact what you buy? Take our Forecasting your Happiness and on your feedback page you will learn if happiness matters more when you are buying a life experiences or a material item.

How materialistic are you? Find out by taking the Materialistic Values Scale.

Are you a compulsive buyer? Take the Compulsive Buying Scale and learn about your spending habits.

With these insights, you can better understand the ways in which your financial decisions affect your happiness.

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Can Money Buy Happiness? Yes (when spent correctly).

Every day more and more people are trying to understand the relationship between money and happiness. Although everyone desires to be happy, the pathways people choose are varied (and not always successful). People frequently believe that making more money will increase their happiness. However, although the United States economy has grown steadily since the 1950’s, happiness levels of Americans have not increased (Diener & Seligman, 2004). Also, after a person’s basic needs have been met (food, shelter, etc.), the relationship between income and happiness is quite small (Howell & Howell, 2008). This leads to a simple, yet important question: if materialistic pursuits, those that are embodied by the American Dream, are not making people happier, then are the hours we spend pursuing better careers, nicer homes, and faster cars, in vain? The problem is that people are simply spending their money on the wrong things (literally). People can spend their money in ways which will make them, and others around them, happier—by focusing their expenditures on activities that satisfy their basic psychological needs. Recently, research has begun to support this recommendation.

Based on one of the most prominent theories of motivation and well-being, Self-Determination Theory (SDT; Ryan & Deci, 2000), researchers have begun exploring the types of consumer choices that will satisfy a person’s psychological needs. SDT predicts that a person will be happiest when three basic psychological needs are satisfied: autonomy, competence, and relatedness. A person feels autonomous when his or her actions are freely chosen, self-guided, and internally (as opposed to externally) motivated. A person feels competence when they use their talents and abilities to master a skill or learn a new task. A person feels relatedness and connected to other people when their activities develop supportive relationships and when a person feels understood by others.

Also, and very important, literally thousands of studies demonstrate the positive effect of psychological need satisfaction on happiness. In one recent study, we asked people to track their activities hour-by-hour for three days. Additionally, we asked them to report how much psychological need satisfaction and happiness they experienced during each activity. The amount of happiness people experienced each hour was directly related to the degree to which the activity was autonomous and increased their relatedness with others (Howell et al., 2011).

Thus, because of the connection between activities that satisfy psychological needs and momentary happiness, we examined whether expenditures that satisfy higher level needs (as proposed by SDT) would make people happier. Specifically, we tested if money spent on life experiences (e.g. concerts, vacations, dining experiences), as opposed to material objects (e.g. clothing, jewelry, electronics), would better satisfy the psychological needs of autonomy, competence, and relatedness, and in turn increase happiness (Howell & Hill, 2009). To test our hypothesis, we asked people to write about a recent life experience or a material object they had purchased and report the degree to which the purchase made them happy and made others happy. They also rated the degree to which their purchase satisfied their psychological needs. As we expected, when compared to material items, life experiences were found to make the buyer and others happier. The reason for the increased happiness from life experiences was that these purchases, first, satisfied the need for relatedness and this increased relatedness resulted in people feeling more alive. Life experiences were also less likely to be socially compared (a tendency which can undermine happiness).

At BeyondThePurchase.Org we help people understand the relationship between money and happiness. To better understand the benefits of specific consumer choices, we continue to investigate the relationships between consumer preferences, psychological needs, happiness, and values at our website by allowing people to take tests on personality. To learn about what might be influencing how you think about and spend your money, register with Beyond The Purchase, then take a few of our personality quizzes:

How do you find happiness? Take our happiness quiz and find out your happiness score.

Some people are gadget heads and some are foodies. Which do you spend your money on? The Experiential Buying Scale provides you with personalized feedback to learn what kind of things you tend to acquire.

How materialistic are you? Find out by taking the Materialistic Values Scale.

Are you a compulsive buyer? Take the Compulsive Buying Scale and learn about your spending habits.

In what ways do you hope your purchases will transform your life? The Transformation Expectations Questionnaire will tell you about what you expect from your next big purchase.

Diener, E., & Seligman, M.E.P. (2004). Beyond money. Toward an economy of well-being. Psychological Science in the Public Interest, 5(1), 1–31.

Howell, R.T., Chenot, D., Hill, G., & Howell, C.J. (2011). Momentary happiness: The role of psychological need satisfaction. Journal of Happiness Studies, 12(1), 1–15.

Howell, R.T., & Hill, G. (2009). The mediators of experiential purchases: Determining the impact of psychological needs satisfaction and social comparison. The Journal of Positive Psychology, 4, 511–522.

Howell, R.T., & Howell, C.J. (2008). The relation of economic status to subjective well-being in developing countries: A meta-analysis. Psychological Bulletin, 134, 536–560.

Ryan, R., & Deci, E.L. (2000). Self-determination theory and the facilitation of intrinsic motivation, social development, and well-being. American Psychologist, 55(1), 68–78.

 

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How can I Reduce my Compulsive Spending Habits?

Last week I wrote about how a lack of money management predicts individuals’ compulsive spending, regardless of their personality, gender, age, and income. These results were based on a study (Sadness, Identity, and Plastic in Over-shopping) published in the Journal of Economic Psychologywhich was conducted with two students of mine former (Grant Donnelly and Masha Ksendzova).

I received quite a few emails and there were a number of follow-up questions people wanted to ask. So, I decided to ask Masha to answer the top five most popular questions:

Confessions of a Shopaholic

What drives materialists to buy compulsively? Our study suggests that materialists are more likely to be compulsive buyers (although not all compulsive buyers are necessarily materialists) because they don’t manage their credit as well as general consumers, believe that purchases will transform their lives, and buy for emotional relief. If people are materialistic, it means that they value the acquisition of tangible products and believe those products will bring them happiness. If the same individuals do not regulate their credit use, they loosen the reins on their spending – they can shop as much as they want without a real restraint. If we add retail therapy into the mix, and the promise of a purchase to improve one’s life and self, then we have a recipe for consumer disaster.

Why do shopaholics, as they’ve been called, overspend? If we’re talking about compulsive buyers, the ones who suffer terrible financial and emotional consequences from their shopping behavior, then most researchers will tell you that these individuals shop in reponse to negative emotions or negative awareness of the self. Shopping is something to do, but it is mindless. It is engaging mentally, but requires little effort. If people value material possessions, the idea of going to the mall over doing something else is more likely to pop up in their minds at the moment of low self-esteem. If these people have credit cards and are too focused on the promise of their purchases instead of future financial consequences, they can get engage in out-of-control spending. With a slide of a credit card and delayed payment, we don’t experience the same psychological impact of parting with money – we get excited about a purchase now, face the pain of acknowledging our spending behavior later, and don’t learn as well from this cause-and-effect relationship. Some people value material things, and they take this value to the extreme when they have the right tools.

What role do credit cards play in compulsive buying? With a slide of a credit card and delayed payment, we don’t experience the same psychological impact of parting with money – we get excited about a purchase now, face the pain of acknowledging our spending behavior later, and don’t learn as well from this cause-and-effect relationship. Credit cards get rid of restraints, both of actual money and our psychological discomfort of spending it. When we handle cash, we physically part with it, and our awareness of spending money increases. The consequence is immediate. When we use a debit card, we can think of our balance dropping to an eventual zero – there is a real bottom to hit. When we slide the credit card, we can delay the consequences – we can stick our heads in the sand like ostriches. 

Does bad credit management come from ignorance or is it intentional? It is somewhat intentional ignorance. Rationally speaking,  people who value possessions should be MOST concerned with managing their money for one simple reason – with better financial standing, they can buy more! However, they would have to pace themselves and buy less first. This behavior doesn’t mix well with the frantic desire for a quick fix of identity and emotion in the now. However, because some individuals really value money, they have trouble facing the fact that they’re not spending it wisely or that they just don’t have it. There’s something in psychology called “the ostrich effect,” and it suggests we pay more attention to good information and try to limit our awareness of the bad. We also call it “the pain of knowing,” which may be so debilitating that individuals would rather ignore their debts than face them. When the overspending is extreme enough to be considered compulsive buying, individuals experience a great deal of guilt and sometimes go as far as hiding their purchases out of sight. These individuals understand there is something wrong with their behavior, but may be too scared  to face reality, and “sticking their heads in the sand” only perpetuates the problem.

What can be done to help with compulsive spending habits? If someone fills out a clinical screener and turns out to be a compulsive buyer instead of a casual overspender, then counselling and professional help. Most often, compulsive buyers experience a great deal of negative emotion, and the actual shopping isn’t the root of their problem. That’s where therapy comes in. If people just want to spend money more wisely, we urge them to shop using cash or at least debit, not to buy immediately (instead, take a break between deciding on a purchase and actually getting it, walk around the store or save the page if shopping online), and question their motivations – will this item really make you happier, make people like you better, and make you feel more self-confident, or is it just something the media wants you to think? Do you really need it?

At BeyondThePurchase.Org we help people make the connection between their spending habits – how do you spend your money and who do you spend it on – and their happiness. To learn about what might be influencing how you think about and spend your money, Login or Register with Beyond The Purchase, then take a few of our spending habits quizzes:

How do your current priorities impact what you buy? Take our Life Goals and Buying Choices and on your feedback page you will learn you will learn how current priorities impact what you buy.

How does your expected happiness impact what you buy? Take our Forecasting your Happiness and on your feedback page you will learn if happiness matters more when you are buying a life experiences or a material item.

How materialistic are you? Find out by taking the Materialistic Values Scale.

Are you a compulsive buyer? Take the Compulsive Buying Scale and learn about your spending habits.

With these insights, you can better understand the ways in which your financial decisions affect your happiness.

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The Billionaire’s Brain: Do You Have One?

This week I am posting a guest blog by Dr. Daniel Crosby.

I’m convinced that one secret of Warren Buffett’s enduring popularity is his “everyman-ness.” While “The Oracle” is insanely wealthy, he is also grounded and approachable which makes replicating what he has done seem almost doable for regular schlubs like you or I. Buffett famously said of intelligence and investment success, ”You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” But is he right? Are billionaires really just ordinary folks or do their brains operate in a more rarified way?

Luckily for us, Jonathan Wai, a research scientist at Duke set out to answer this very question. Wai found that about 45 percent of billionaires were in the top one percent of cognitive ability, beating out Senators (41%), Fortune 500 CEOs (38.6 percent) and especially those dummies in the House of Representatives (21%). But despite the overall braininess of the ultra-wealthy, many other factors certainly play in, factors like work ethic, privilege, discipline and luck. So, assuming a big brain isn’t all it takes to make the Forbes 400, what are some of the behavioral attributes of the Warren Buffett’s of the world that make them so successful.

To name a few, they are:

A contrarian mind – Buffett is what is referred to as a “value investor”, one who buys stocks that others have discarded for not being sufficiently glamorous. While most of us run out of the market just as stocks are going on sale, two prominent billionaires, Buffett and Sir John Templeton made their fortunes taking a different tack. Buffett’s advice in this respect was to, “Be fearful when others are greedy and greedy when others are fearful” whereas Sir John counseled that, “The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” In both cases, their fortunes were made not necessarily by smarts, but by swimming upstream.

A patient mind – As a human race, we are prone to “present bias” or to use the psychobabble term, “hyperbolic discounting.” The present reality tends to win out over a desired future reality, since our future selves are experiences as being less real. Consider every diet you’ve ever been on (if you’re like me). You have an idealized vision of your future self, one with better abs and at least one fewer chin, but your present bias keeps getting in the way. That future self lives somewhere in the ether, but those cookies?! Those sweet, buttery cookies? They are here right now. This sort of impatience leads us to make easy decisions now that don’t serve the wealth building efforts of our future self. Billionaire hedge fund manager Ray Dalio and media mogul Oprah Winfrey both practice meditation as a means of fine-tuning the wealth building competence of patience.

A simple mind – Excuse me? A simple mind? Before you accuse me of calling the 1% of the 1% simple-minded, let me elaborate. Consider some of the highest profile billionaires around and how they made their fortunes. Mark Zuckerberg got rich helping us connect more effortlessly. Steve Jobs made his billions by streamlining the personal computing experience. Sam Walton spawned a family fortune by putting everything you need under one roof at a low price. I have no doubt that each of these individuals are bright or that there is true genius in making the complex seem simple. But in each case, the brilliance of their discovery was how commonplace it looked after the fact. With 20/20 hindsight we shake our heads and ask, “Why didn’t I think of that?” Rather than complicating something for its own sake, or out of some sense of intellectual showmanship, these three made it big by making it easy.

It may be the case that you have the kind of intellect that can propel you to fortune and fame. But if not, perhaps being a plodding, simple-minded contrarian will do the trick just as nicely.

At BeyondThePurchase.Org we help people make the connection between their spending habits – how do you spend your money and who do you spend it on – and their happiness. To learn about what might be influencing how you think about and spend your money, Login or Register with Beyond The Purchase, then take a few of our spending habits quizzes:

How do your current priorities impact what you buy? Take our Life Goals and Buying Choices and on your feedback page you will learn you will learn how current priorities impact what you buy.

How does your expected happiness impact what you buy? Take our Forecasting your Happiness and on your feedback page you will learn if happiness matters more when you are buying a life experiences or a material item.

Which spending decisions will make you happiest? Take our Spending Choices and Happiness survey and on your feedback page you will learn how to spend your money to be happier.

How happy are you these days? Take our Happiness and Life Satisfaction quiz and find out your happiness score.

How materialistic are you? Find out by taking the Materialistic Values Scale.

Are you a compulsive buyer? Take the Compulsive Buying Scale and learn about your spending habits.

With these insights, you can better understand the ways in which your financial decisions affect your happiness.

Educated at Brigham Young and Emory Universities, Dr. Daniel Crosby is a psychologist and behavioral finance expert who helps organizations understand the intersection of mind and markets. His clients include Brinker Capital, Morgan Stanley, RS Funds, Guardian Life Insurance and NASA. Dr. Crosby’s well-reviewed book, “You’re Not That Great” applies elements of behavioral finance such as loss aversion and availability heuristic to the pursuit of a meaningful life. You can follow Dr. Crosby (@incblot) on Twitter.

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